Chapter 13 Appointing A Sales Agents

Introduction

Selling a product through an overseas agent is a very successful strategy. Sales agents are available on commission basis for any sales they make. The key benefit of using an overseas sales agent is that you get the advantage of their extensive knowledge of the target market. Sales agent also provides support to an exporter in the matter of transportation, reservation of accommodation, appointment with the government as and when required. It is, therefore, essential that one should very carefully select overseas agent.

Merits of Appointing a Sales Agent

There are various types of merits associated with appointed a sales agent for export purpose are as follow:

  • Sales agent avoids the recruitment, training, time and payroll costs of using own employees to enter an overseas market.
  • An agent is a better option to identify and exploit opportunities in overseas export market.
  • An agent already have solid relationships with potential buyers, hence it saves the time of the exporter to build own contacts.
  • An agent allows an exporter to maintain more control over matters such as final price and brand image – compared with the other intermediary option of using a distributor.

Demerits of Appointing a Sales Agent

There are also certain disadvantages associated with appointing a sales agent for export purpose which are as follows:

  • After-sales service can be difficult when selling through an intermediary.
  • There is a risk for exporter to lose some control over marketing and brand image.

Important Points While Appointing a Sales Agent:
Appointing right sales agent not only enhance the profit of an exporter but also avoid any of risks associated with a sales agent. So it becomes important for an exporter to take into consideration following important points before selection an appropriate sales agent for his product.

  • Size of the agent’s company.
  • Date of foundation of the agent’s company.
  • Company’s ownership and control.
  • Company’s capital, funds, available and liabilities.
  • Name, age and experience of the company’s senior executives.
  • Number, age and experience of the company’s salesman.
  • Oher agencies that the company holds, including those of competing products and turn-over of each.
  • Length of company’s association with other principal.
  • New agencies that the company obtained or lost during the past year.
  • Company’s total annual sales and the trends in its sales in recent years.
  • Company’s sales coverage, overall and by area.
  • Number of sales calls per month and per salesman by company staff.
  • Any major obstacles expected in the company’s sales growth.
  • Agent’s capability to provide sales promotion and advertising services
  • Agent’s transport facilities and warehousing capacity.
  • Agent’s rate of commission; payment terms required.
  • References on the agents from banks, trade associations and major buyers.

Some source of Information on Agents is:

  • Government Departments Trade Associations.
  • Chambers of Commerce.
  • Banks.
  • Independent Consultants.
  • Export Promotion Councils.
  • Advertisement Abroad.

Agent v Distributor
There is a fundamental legal difference between agents and distributors and an exporter should not confuse between the two. An agent negotiates on the behalf of an exporter and may be entitled to create a legal relationship between exporter and the importer

A distributor buys goods on its own account from exporter and resells those products to customers. It is the distributor which has the sale contract with the customer not the exporter. In the case of distributor, an exporter is free from any kinds of risks associated with the finance.

 

Chapter 12 Understanding of Foreign Exchange Rates.

Introduction

An exporter without any commercial contract is completely exposed of foreign exchange risks that arises due to the probability of an adverse change in exchange rates. Therefore, it becomes important for the exporter to gain some knowledge about the foreign exchange rates, quoting of exchange rates and various factors determining the exchange rates. In this section, we have discussed various topics related to foreign exchange rates in detail.

Spot Exchange Rate
Also known as “benchmark rates”, “straightforward rates” or “outright rates”, spot rates represent the price that a buyer expects to pay for a foreign currency in another currency. Settlement in case of spot rate is normally done within one or two working days.

Forward Exchange Rate
The forward exchange rate refers to an exchange rate that is quoted and traded today but for delivery and payment on a specific future date.

Method of Quoting Exchange Rates
There are two methods of quoting exchange rates:

  • Direct Quotation: In this system, variable units of home currency equivalent to a fixed unit of foreign currency are quoted.
    For example: US $ 1= Rs. 42.75
  • Indirect Quotation: In this system, variable units of foreign currency as equivalent to a fixed unit of home currency are quoted.
    For example: US $ 2.392= Rs. 100

Before 1993, banks were required to quote all the rates on indirect basis as foreign currency equivalent to RS. 100 but after 1993 banks are quoting rates on direct basis only.

Exchange Rate Regime

The exchange rate regime is a method through which a country manages its currency in respect to foreign currencies and the foreign exchange market.

  • Fixed Exchange Rate
    A fixed exchange rate is a type of exchange rate regime in which a currency’s value is matched to the value of another single currency or any another measure of value, such as gold. A fixed exchange rate is also known as pegged exchange rate. A currency that uses a fixed exchange rate is known as a fixed currency. The opposite of a fixed exchange rate is a floating exchange rate.
  • Floating Exchange Rate
    A Floating Exchange Rate is a type of exchange rate regime wherein a currency’s value is allowed to fluctuate according to the foreign exchange market. A currency that uses a floating exchange rate is known as a floating currency. A Floating Exchange Rate or a flexible exchange rate and is opposite to the fixed exchange rate.
  • Linked Exchange Rate
    A linked exchange rate system is used to equlise the exchange rate of a currency to another. Linked Exchange Rate system is implemented in Hong Kong to stabilise the exchange rate between the Hong Kong dollar (HKD) and the United States dollar (USD).

Forward Exchange Contracts
A Forward Exchange Contract is a contract between two parties (the Bank and the customer). One party contract to sell and the other party contracts to buy, one currency for another, at an agreed future date, at a rate of exchange which is fixed at the time the contract is entered into.

Benefits of Forward Exchange Contract

  • Contracts can be arranged to either buy or sell a foreign currency against your domestic currency, or against another foreign currency.
  • Available in all major currencies.
  • Available for any purpose such as trade, investment or other current commitments.
  • Forward exchange contracts must be completed by the customer. A customer requiring more flexibility may wish to consider Foreign Currency Options.

Foreign Currency Options
Foreign Currency Options is a hedging tool that gives the owner the right to buy or sell the indicated amount of foreign currency at a specified price before a specific date. Like forward contracts, foreign currency options also eliminate the spot market risk for future transactions. A currency option is no different from a stock option except that the underlying asset is foreign exchange. The basic premises remain the same: the buyer of option has the right but no obligation to enter into a contract with the seller. Therefore the buyer of a currency option has the right, to his advantage, to enter into the specified contract.

Flexible Forwards
Flexible Forward is a part of foreign exchange that has been developed as an alternative to forward exchange contracts and currency options. The agreement for flexible forwards is always singed between two parties (the ‘buyer’ of the flexible forward and the ‘seller’ of the flexible forward) to exchange a specified amount (the ‘face value’) of one currency for another currency at a foreign exchange rate that is determined in accordance with the mechanisms set out in the agreement at an agreed time and an agreed date (the ‘expiry time’ on the ‘expiry date’). The exchange then takes place approximately two clear business days later on the ‘delivery date’).

Currency Swap
A currency swap which is also known as cross currency swap is a foreign exchange agreement between two countries to exchange a given amount of one currency for another and, after a specified period of time, to give back the original amounts swapped.

Foreign Exchange Markets
The foreign exchange markets are usually highly liquid as the world’s main international banks provide a market around-the-clock. The Bank for International Settlements reported that global foreign exchange market turnover daily averages in April was $650 billion in 1998 (at constant exchange rates) and increased to $1.9 trillion in 2004 [1]. Trade in global currency markets has soared over the past three years and is now worth more than $3.2 trillion a day. The biggest foreign exchange trading centre is London, followed by New York and Tokyo.

 

Chapter 11 Export Pricing And Costing

Introduction

Pricing and costing are two different things and an exporter should not confuse between the two. Price is what an exporter offer to a customer on particular products while cost is what an exporter pay for manufacturing the same product.

Export pricing is the most important factor in for promoting export and facing international trade competition. It is important for the exporter to keep the prices down keeping in mind all export benefits and expenses. However, there is no fixed formula for successful export pricing and is differ from exporter to exporter depending upon whether the exporter is a merchant exporter or a manufacturer exporter or exporting through a canalising agency.

Determining Export Pricing

Export Pricing can be determine by the following factors:

  • Range of products offered.
  • Prompt deliveries and continuity in supply.
  • After-sales service in products like machine tools, consumer durables.
  • Product differentiation and brand image.
  • Frequency of purchase.
  • Presumed relationship between quality and price.
  • Specialty value goods and gift items.
  • Credit offered.
  • Preference or prejudice for products originating from a particular source.
  • Aggressive marketing and sales promotion.
  • Prompt acceptance and settlement of claims.
  • Unique value goods and gift items.

Export Costing
Export Costing is basically Cost Accountant’s job. It consists of fixed cost and variable cost comprising various elements. It is advisable to prepare an export costing sheet for every export product.

As regards quoting the prices to the overseas buyer, the same are quoted in the following internationally accepted terms which are commonly known as Incoterm.

 

Chapter 10 Exporting Product Samples

Introduction
The foreign customer may ask for product samples before placing a confirmed order. So, it is essential that the samples are made from good quality raw materials and after getting an order, the subsequent goods are made with the same quality product.

Extra care should be taken in order to avoid the risk associated in sending a costly product sample for export. Secrecy is also an important factor while sending a sample, especially if there is a risk of copying the original product during export.

Before exporting a product sample an exporter should also know the Government policy and procedures for export of samples.

While sending a product sample to an importer, it is always advised to send samples by air mail to avoid undue delay. However, if the time is not an issue then the product sample can also be exported through proper postal channel, which is cheaper as compared to the air mail.

Sending Export Samples from India

Samples having permanent marking as “sample not for sale” are allowed freely for export without any limit. However, in such cases where indelible marking is not available, the samples may be allowed for a value not exceeding US $ 10,000, per consignment.

For export of sample products which are restricted for export as mentioned in the ITC (HS) Code, an application may be made to the office of Director General of Foreign Trade (DGFT).

Export of samples to be sent by post parcel or air freight is further divided into following 3 categories, and under each category an exporter is required to fulfill certain formalities which are mentioned below :

  1. Samples of value up to Rs.10, 000- It is necessary for the exporter to file a simple declaration that the sample does not involve foreign exchange and its value is less than Rs. 10,000.
  2. Samples of value less than Rs. 25,000- It is necessary for the exporter to obtain a value certificate from the authorised dealer in foreign exchange (i.e. your bank). For this purpose, an exporter should submit a commercial invoice certifying thereon that the parcel does not involve foreign exchange and the aggregate value of the samples exported by you does not exceed Rs. 25,000 in the current calendar year.
  3. Samples of value more than Rs. 25,000- It becomes necessary for the exporter to obtain GR/PP waiver from the Reserve Bank of India

Export Samples against Payment
A sample against which an overseas buyer agrees to make payment is exported in the same manner as the normal goods are exported. Sample can also be carried personally by you while travelling abroad provided these are otherwise permissible or cleared for export as explained earlier. However, in case of precious jewellery or stone the necessary information should be declared to the custom authorities while leaving the country and obtain necessary endorsement on export certificate issued by the Jewelry Appraiser of the Customs.

Export of Garment Samples
As per the special provision made for the export of garment samples, only those exporters are allowed to send samples that are registered with the Apparel export Promotion Council (AEPC). Similarly, for export of wool it is necessary for the exporter to have registration with the Woolen Export Promotion Council.

Export of Software
All kinds electronic and computer software product samples can only be exported abroad, if the exporter dealing with these products is registered with the Electronics and Computer Software Export Promotion Council (ESC)

Similarly samples of other export products can be exported abroad under the membership of various Export Promotion Councils (EPC) of India.

 

Chapter 9 Export Sales Leads

Introduction

Export Sales leads are initial contacts a seller or exporter seeks in order to finalize a deal or agreement for export of goods and are considered as the first step in the entire sales process. After getting the first lead, a company should respond to that lead in a very carefully manner in order to convert that opportunity into real export deal.

Generating Sales Leads

Sales leads can be generated either through a word-of-mouth or internet research or trade show participation.

Qualifying sales leads

As the buyer is far away and sometimes communication process can be difficult, so it’s always better to make an extra effort to understand the exact need of the customer.

Sending Acknowledgement

After receiving a lead it is quite important to acknowledge the enquirer within 48 hours of receiving the enquiry either through e-mail or fax. Acknowledgement also gives an option to provide further detail about the product or to make an enquiry about the buyer.

Responding with quality products

Quality products strengthen buyer seller relationship, so it’s always better to provide quality products to the buyers.

Follow Ups

Always try to be in touch with the buyer or customer. For this purpose one can ask a phone number and a convenient time to call. It is always better to make the call in the presence of an Export Adviser. One should avoid high pressure call during follow up.